The Dutch partcipation exemption has always been a very important tax planning tool for multinational enterprises. By inserting an intermediate holding company in the Netherlands into a group structure, foreign multinationals have access to this tax planning tool and many of them use this powerful feature on a daily basis, to reduce the world-wide tax on their profits.

It should be noted that the Dutch participation exemption has almost completely been rewritten in the last 8 years. The basic idea behind the changes which the Dutch Ministry of Finance made, has been to improve the participation exemption for tax payers, in order  to gain back lost ground from countries which  have introduced particpation exemptions of their own, during the last two decades (Belgium, France, Luxembourg, Cyprus, Spain, Germany, Israel, even the UK in 2010 etc. etc,).

Some of the major changes:

1) the exemption may now also apply to foreign dividends from legal entities which are not subject to foreign profits tax (such as UAE entities and tax haven entities), a revolutionary new feature which in the longer term will make the participation exemption systems of other countries less attractive, because they all contain requirements as to a minimum foreign ”underlying” profits tax (usually 50% of their own profits tax rate). Holland requires no ”underlying” profits tax for dividends and capital gains to qualify for the Dutch tax exemption, provided the dividends and capital gains are coming from entities which conduct an active trade or business. In other cases (passive subsidiaries) the participation exemption will also be granted, provided the underlying profits tax is at least 10%.

2) Passive real estate investment subsidiaries abroad also qualify for the Dutch participation exemption even if less than 10% ”underlying” tax has been paid abroad. It remains to be seen what will happen under BEPS. Today there is a so-called Resolution which discloses which foreign forms of Limited Partnerships are seen as transparent or non-transparent from a Dutch corporate income tax viewpoint. The Dutch Ministry of Finance still regularly updates a list, available on the internet, which shows what types of foreign partnerships may qualify for the Dutch participation exemption. This is a unique feature because an investment in a partnership is usually treated as a PE and mismatches between foreign taxable income and taxfree income in the Netherlands via the participation exemption) cannot occur.